In re Columbia Gas System, Inc.

• Decision Date: 06 October 1992
• Docket Number: Bankruptcy No. 91-803,Civ. A. No. 92-258 LON,91-804.
• Citation: 146 BR 106
• Parties: In re The COLUMBIA GAS SYSTEM, INC. and Columbia Gas Transmission Corporation, Debtors. ENTERPRISE ENERGY CORPORATION, et al., Appellants, v. UNITED STATES of America, on Behalf of its INTERNAL REVENUE SERVICE, Appellee.
• Court: U.S. District Court — District of Delaware

146 B.R. 106 (1992)

In re The COLUMBIA GAS SYSTEM, INC. and Columbia Gas Transmission Corporation, Debtors ENTERPRISE ENERGY CORPORATION, et al., Appellants, v. UNITED STATES of America, on Behalf of its INTERNAL REVENUE SERVICE, Appellee.

Civ. A. No. 92-258 LON, Bankruptcy Nos. 91-803, 91-804.

United States District Court, D. Delaware.

October 6, 1992.

F.L. Peter Stone and Jeffrey B. Bove of Connolly, Bove, Lodge & Hutz, Wilmington, Del. (Duke W. Thomas (argued), Robert J. Sidman (argued) and James H. Hedden of Vorys, Sater, Seymour and Pease, Columbus, Ohio, of counsel), for appellants.

Ellen Slights of U.S. Atty.'s Office, Wilmington, Del. (Stuart D. Gibson (argued), U.S. Dept. of Justice, Washington, D.C., of counsel), for appellee.

OPINION

LONGOBARDI, Chief Judge.

Before the Court is the appeal of Enterprise Energy Corporation ("Energy" or "Enterprise Energy") from a Bankruptcy Court order, dated March 18, 1992, which denied Enterprise Energy's motion to require Columbia Gas Transmission Corporation ("TCO") to assume or reject an executory settlement agreement.

BACKGROUND

On July 31, 1991 (the "petition Date"), Columbia Gas System, Inc. ("CG") and its subsidiary, TCO (together, the "Debtors") filed petitions for Chapter 11 reorganization in the United States Bankruptcy Court for the District of Delaware. No trustee or examiner has been appointed in these bankruptcy cases and TCO and CG have remained debtors-in-possession pursuant to 11 U.S.C. §§ 1107 and 1108, continuing in the management of their respective businesses and possession of their respective properties. Docket Item ("D.I.") 8 at 2.

The Debtors and their affiliates comprise one of the largest natural gas systems in the United States, consisting of CG (which is the parent public utility holding company), a service company and nineteen subsidiaries, including TCO. These companies are primarily engaged in the exploration and production, purchase, storage, transmission and distribution of natural gas at wholesale and retail and related resource development. Several subsidiaries are gas utility companies that service businesses and homes. TCO serves part of the thirteen Northeastern, Middle Atlantic, Midwest and Southern states and the District of Columbia, transporting and selling natural gas at wholesale to affiliates and unaffiliated distribution companies. TCO is the system's principal purchaser of natural gas from producers in the Southwest, Midcontinent and Appalachia and operates extensive underground storage facilities. D.I. 8 at 2-3.

In July, 1985, Enterprise Energy and two other companies filed a class action complaint against TCO in the United States District Court for the Southern District of Ohio (the "Ohio District Court"). By order dated February 21, 1986, the Ohio District Court certified a class (the "Class Members") consisting of "`all owners, operators and producers of natural gas producing wells in the Appalachian region (New York, Pennsylvania, West Virginia, Kentucky, Maryland, Virginia and Ohio) who are parties to gas purchase contracts with TCO entitling them to receive the maximum lawful price or a deregulated price under the NGPA . . . and against whom TCO has invoked a price reduction for amounts due under the contracts. . . .'" D.I. 5 at 6 (quoting Order of February 21, 1986, Enterprise Energy Corp. v. Columbia Gas Transmission Corp., 137 F.R.D. 240 (S.D.Ohio)). The class includes about 2163 members and involves approximately 852 gas purchase contracts. Id.

The Class Members had asserted that TCO had breached gas purchase contracts (the "Class Member Contracts") between them and TCO. The Class Member Contracts set the price for each unit of natural gas delivered to TCO at the maximum price permitted under the Natural Gas Policy Act of 1978 (the "NGPA") during the month of delivery. The complaint alleged that TCO was substantially underpaying class members for gas delivered and yet to be delivered. Id. at 5-6; D.I. 8 at 3.

The litigation progressed over the next five years with extensive discovery and motion practice. The Ohio District Court set a trial date for September, 1990. The parties, however, engaged in settlement negotiations and the court continued the trial. In February, 1991, TCO entered into a Stipulation of Proposed Class Action Settlement ("Settlement Agreement") which was conditional and subject to approval by the Ohio District Court pursuant to Federal Rule of Civil Procedure 23(e). On March 15, 1991, the Ohio District Court preliminarily approved the proposed settlement agreement. After holding a fairness hearing on May 23, 1991, the Ohio District Court on June 18, 1991, issued an Opinion and Order ("Order") approving the Settlement Agreement. D.I. 5 at 7; D.I. 8 at 4-6. The District Judge explained that "in determining the fairness, adequacy and reasonableness of the proposed Settlement, this Court need not reach ultimate conclusions of fact regarding the merits of the case or decide the underlying issues of law." Opinion and Order, Findings of Fact and Conclusions of Law, Enterprise Energy Corp. v. Columbia Gas Transmission Corp., 137 F.R.D. 240 at 245 (S.D.Ohio 1991) ("Ohio Order"). The Court further noted that only the parties have the power to change the terms of the proposed agreement, not the court. Id. The Ohio District Court ordered the Clerk to enter judgment in the action pursuant to Federal Rule of Civil Procedure 54(b). Id. at 252. No party took an appeal from the June 18, 1991 order; thus, it became final and unappealable on July 18, 1991. The Ohio District Court retained jurisdiction, however, over matters related to the interpretation, implementation and consummation of the settlement.¹ D.I. 8 at 6.

The Settlement Agreement required TCO to deposit 30 million dollars into an interest bearing escrow account with class counsel acting as escrow agent. The proceeds of the escrow account were to be used "in settlement of, and as a full and complete discharge and release of TCO, for all of their claims arising on or before January 1991." D.I. 8 at 4. TCO was to pay the first 15 million dollars on or before March 21, 1991; TCO made the payment in a timely fashion. D.I. 5 at 8; D.I. 8 at 4, 6. The second 15 million dollars was to be paid on March 23, 1992. This payment has not been made as a result of the proceedings in the Bankruptcy Court, discussed infra. D.I. 5 at 8; D.I. 8 at 4-5.

Under the Settlement Agreement, the Class Members were not entitled to receive any of the funds deposited in the Escrow Account until they executed a release of claims and a contract supplement. D.I. 8 at 5. The supplement to the Class Member Contracts was to amend and clarify pricing and other terms concerning future gas deliveries to TCO. D.I. 5 at 8; see also D.I. 8 at 5. Beginning in January, 1991, the difference between the price TCO had been paying and the modified contract price was placed in a "production escrow" account. These funds were to be released to the producers upon approval of the settlement agreement by the Ohio District Court and execution of the necessary releases and contract supplements. D.I. 8 at 5.

PROCEEDINGS IN THE BANKRUPTCY COURT

On July 31, 1991, TCO filed a voluntary Chapter 11 petition in bankruptcy. On February 20, 1992, the Class Members filed a motion to compel TCO to assume or reject the settlement agreement pursuant to 11 U.S.C. § 365 of the Bankruptcy Code. Simultaneously, TCO and the Class Members filed a proposed agreed order assuming the settlement agreement. D.I. 5 at 10; D.I. 8 at 6-7.

Notice of the motion and proposed order was provided to all appropriate parties involved in the bankruptcy. The United States of America on behalf of the Internal Revenue Service ("IRS") filed the only objection to the motion and proposed order. D.I. 5 at 10. TCO agreed with Enterprise Energy that the class action settlement agreement is an executory contract and indicated it wanted to assume its obligations under the settlement. D.I. 8 at 7-11. On March 18, 1992, after holding a hearing on the motion, the Bankruptcy Court denied the motion. The Bankruptcy Court Judge handwrote on the proposed agreed order "Motion denied, March 18, 1992, for the reasons stated in open court." D.I. 5 at 10; see also D.I. 1, Designation 2.

The Bankruptcy Court's conclusions, as stated in open Court, follow in full:

The facts with respect to this motion, Enterprise Energy class members to require assumption or rejection of an executory contract, are not in dispute. A class action suit against TCO in the Federal District Court of Ohio was resolved through a settlement approved by a District judge on June 18, 1991, which was before the bankruptcy filing on July 31, 1991.

It is Energy\'s position that an executory contract exists between the class members and TCO. The Circuit Court of Appeals in this Circuit adopted the Countryman definition of an executory contract. That is an executory contract is a contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing performance of the other.

The central issue is whether the remaining obligations of the class members are material. I find that Energy has not met its burden on this issue. The remaining obligations of the class members relate to the execution of releases, supplemental contracts and affidavits. The United States District Court has retained jurisdiction to supervise the implementation of the approved settlement. If any of the class members fail to honor these execution obligations, there is a procedure in place to deal with the problem, that procedure being due process.

There has been no showing that upon the failure of any class member to perform any of these execution obligations that the United States District Court would set aside its order, thereby reviving the underlying action.

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